Cha-Ching! That’s the sound you’ve heard over the last several months as about 600 companies walked away from the federal cash register, their pockets stuffed with wads of cash. We’ve never been too thrilled with how the economic bailout has been implemented, but now, eight months in, more problems are emerging. Taxpayers are getting less back than promised, transparency has barely increased and the program seems to be turning into a revolving loan fund without Congressional scrutiny. 

Since the Troubled Asset Relief Program (TARP) was created in the fall, about $600 billion has been committed to supporting the financial sector, leaving about $100 billion to go. Throw in the money promised to Fannie Mae and Freddie Mac and the price tag hits $1.1 trillion. And we’re not even counting the Fed’s commitment to shore up financial institutions.

Most of the TARP money is going to banks through the Capital Purchase Program (CPP), under which banks receive money in exchange for preferred stock, theoretically enabling them to maintain or increase lending.

As more and more eyes scrutinize the way the bailout dollars are being used, many concerns arise. First, the Congressional Budget Office estimated that Treasury paid $356 billion more to banks than the value of assets received in exchange – a 51% subsidy rate.

Treasury recently completed a series of “stress tests” on 19 of the country’s largest banks to determine whether TARP was indeed helping them avoiding shutting down. While Treasury’s view of the test results was optimistic, the banks could lose $599 billion by the end of 2010 under the worst case scenario. Also, Treasury is requiring 10 of the banks to raise billions in additional capital to shore up their balance sheets. But by requiring banks to bolster their capital cushions, some banks may reduce lending – the opposite of the Bailout’s goal.   And for those banks unable to meet the capital goals, Uncle Sam may become their owner.

Other banks are considering getting out of the TARP game altogether, and some have already bought back their stock and warrants . Initially the public was led to believe that we might actually profit from TARP investments after the economic dust settled. But it looks like Treasury is content with taxpayers swallowing all of that $356 billion overpayment.  Warrants that were part of most of the TARP deals represent the Treasury’s potential for profit.   A warrant holder has the right to purchase a company’s stock, and can thus profit in the future if that stock is sold at a higher price. In one recent example Old National Bancorp bought back all of its preferred stock from Treasury and negotiated a $1.2 million buyback of its warrants. But a separate analysis put the potential value of those warrants at $6.9 million.

We agree that Treasury shouldn’t be in the business of playing the stock market. But allowing other private investors to bid on the warrants would result in a fairer valuation without increasing risks to taxpayers.

Treasury Secretary Geithner now wants to recycle the returned cash and give it to banks that are not yet participating in the program – TARP II. Sequels are rarely better.We’ve argued for months that one of the biggest problems with the first bailout was the failure of Congress and Treasury to lay out clear, measurable goals.  Before recycling the dough, Congress should force Treasury to come back to the table and tell taxpayers just how we are benefiting from the money already doled out and explain TARP’s effectiveness in shoring up the economy. We can’t afford a rerun of the same mistakes.